Top 5 Mistakes to Avoid While Taking a Loan
The need for a loan can arise at any time. Thanks to online lenders, getting a loan today is incredibly easy. Despite the ease of availability, there are still some mistakes that applicants make which can cost them dearly later.
This infographic highlights the top 5 costly mistakes to steer clear of while taking a loan.
1. Not Comparing Different Loan Options
Plenty of lenders in the market today offer loans at different rates. Choosing the first loan you find may not always be the best option. Why not shop around and choose the most economically viable option?
However, be wary of applying for too many loans at the same time as this could reduce your credit score. More on this below.
2. Not Understanding Your Repayment Capacity
Before taking a loan, it is crucial to know how much you can afford to spend on EMIs. The amount you spend should not significantly affect your existing quality of life. A good way to find out your approximate EMI amount is by using a personal loan EMI calculator.
3. Not Reading the Terms and Conditions
The fine print in any agreement contains a wealth of information that should not be ignored.
The next time you get a loan, ensure that you read all the terms and conditions thoroughly before committing.
4. Applying for Multiple Loans at the Same Time
While you are advised to look at the different rates offered by lenders, applying for multiple loans at the same time is not recommended. When the lender processes your application, a hard enquiry is made. Too many of these hard enquiries could reduce your credit score over time.
5. Opting for a Longer Tenure
You may assume that a longer tenure will reduce your repayment amount. While your EMI is definitely lower, the amount you pay as interest throughout the tenure will definitely be higher. Therefore, opt for a shorter tenure as much as possible.
In Summary
Personal loans can come in handy for a variety of situations such as medical emergencies, credit card debt, or even vacations. However, despite the ease of access and the transparency offered, it is important to keep certain points in mind to have a smoother repayment experience.
Are there any other mistakes that one can avoid while taking a loan? Let us know in the comments below.